NEW YORK (CNN/Money) -
The U.S. State Department has tapped Bechtel Corp. to be the primary contractor to rebuild Iraq's infrastructure, giving it a contract that could be worth up to $680 million, the department said Thursday.
San Francisco-based Bechtel, a private corporation whose board includes former Secretary of State George Shultz, will do the initial work of rebuilding the "vital elements of Iraq's infrastructure," including power facilities, electrical grids, municipal water and sewage systems.
"Restoration of the country's key infrastructure is a priority of the U.S. government's effort to strengthen Iraq's economy and ensure delivery of essential public services to the Iraqi population," the U.S. Agency for International Development (USAID), the State Department agency handling the first stages of Iraq's rebuilding, said in a press release.
The first phase of the work will be worth $34.6 million, though the contract provides for funding of up to $680 million in the next 18 months, "subject to Congressional authority and availability," USAID said. It's by far the largest of eight contracts USAID will award during the first stages of Iraq's reconstruction, which some experts have said eventually could cost up to $200 billion.
"Bechtel is honored to have been asked by USAID to help bring humanitarian assistance, economic recovery and infrastructure reconstruction to the Iraqi people," Bechtel National Inc. President Tom Hash said.
Several other companies have at various times been reported as possible competitors for the job, either as primary bidders or as parts of teams, including the Kellogg Brown & Root (KBR) unit of Halliburton Co. (HAL: Research, Estimates) -- of which Vice President Dick Cheney once was CEO -- Parsons Corp., Washington Group International Inc. (WGII: Research, Estimates), Louis Berger Group and Fluor Corp. (FLR: Research, Estimates)
USAID said Bechtel will use subcontractors for much of its work, and several of the companies that missed out on the main contract still could get work.
"KBR remains committed to assist in the rebuilding and restoration of Iraq to help restore needed services for the Iraqi people," Halliburton spokeswoman Wendy Hall said. "The company would comply with other bid requests should we determine the opportunity was a good business venture. KBR is proud to offer the company's global resources at this critical time."
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 Among the key post-war issues facing the U.S. is what will become of Iraq's greatest asset, its oil. Allan Chernoff reports how Iraqi oil at the moment is tied up in a tangle of legal, diplomatic and business problems.
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USAID also said Bechtel should "engage the Iraqi population" and "work to build local capacity." When USAID issued contracts to rebuild Bosnia and Kosovo in the late 1990s, it required that many of the subcontractors be local.
It's still not clear how deeply Iraqi and other Arab companies will be involved in Iraq's rebuilding, but the New York Times reported Friday that the State Department had contacted Arab countries and encouraged them to prepare bids.
Bechtel's contract includes repairing airports and helping Seattle-based private company Stevedoring Services of America -- which won a $4.8 million contract from USAID last month -- repair the port of Umm Qasr.
Later, Bechtel's duties could include repair of hospitals, schools, selected ministry buildings, irrigation structures and transport links.
Halliburton, Washington Group and Fluor, along with privately held Perini Corp., already have won contracts from the U.S. Army Corps of Engineers to perform other work in and around Iraq. Halliburton has won a contract, which could be worth $7 billion and could last up to two years, to make emergency repairs to Iraq's oil infrastructure.
Iraqi oil -- which is practically the only commodity or good the nation exports -- will be critical not only to rebuilding Iraq but to helping provide humanitarian relief and pay for war damages.
Other private companies also have won USAID contracts for work in Iraq. International Resources Group, a private firm in Washington, D.C., will get $7 million for personnel support. Creative Associates International Inc., another private firm in Washington, D.C., won a $2 million contract for education services. And Research Triangle Institute, a private firm in Raleigh/Durham, N.C., won a $7.9 million contract to rebuild local governance.
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Awarding these rebuilding contracts has been fraught with political and international controversy. Halliburton's Army contract was awarded without competitive bidding, leading Reps. Henry Waxman, D-Calif., and John Dingell, D-Mich., to call for an investigation of the award process. Congress's General Accounting Office has said it will investigate.
The Army has said the contract needed to be awarded quickly and in secrecy for reasons of security and expediency and that a new contract, subject to competitive bidding, will soon be awarded to complete Halliburton's work.
Other critics have cited the political donations and connections of many of the companies involved in the bidding -- Bechtel CEO Riley P. Bechtel recently was named to President Bush's Export Council, an advisory committee on international trade, for example -- and accused the Bush administration of favoritism.
In response, U.S. officials have noted that Bechtel and the other companies involved in the bidding are perfectly suited for the work, having a long history of experience in conducting major construction projects around the world. Bechtel helped build the Hoover Dam and rebuild Kuwait after the first Gulf War.
Other countries -- including the United Kingdom, which provided thousands of troops to the war effort -- fear they're going to miss out on the lucrative job of rebuilding Iraq and insist the United States allow the United Nations to take control of the work.
That controversy has not yet been settled, but the United States has said it's inclined to relegate the U.N. to a supporting role, providing humanitarian relief. The Bush administration has said foreign companies could bid as subcontractors for the rebuilding work.
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